The Option and Decision to Repurchase Stock

Financial Management (Forthcoming)

40 Pages Posted: 31 Jul 2011 Last revised: 9 Apr 2014

Rohit Sonika

Aalto University - Department of Accounting and Finance

Nicholas F. Carline

Department of Finance, Birmingham Business School, University of Birmingham

Mark B. Shackleton

Lancaster University - Department of Accounting and Finance

Date Written: April 8, 2014

Abstract

Open market repurchase programs provide firms with the flexibility to manage the cash and risk aspects of their operations. This paper therefore aims to determine whether cash and risk matter only at the implementation stage in the sequence of a repurchase program: announcement, implementation, and withdrawal. We do find that temporary cash and risk measures only affect the implementation decision, while partially negating the traditional signaling effect around program announcement. The relevance of the flexibility afforded by the early announcement of a repurchase program is also evidenced by a steadily increasing time-to-event probability of repurchase implementation and program withdrawal.

Keywords: Share repurchase, open-market, flexibility, cash, risk

JEL Classification: G35

Suggested Citation

Sonika, Rohit and Carline, Nicholas F. and Shackleton, Mark B., The Option and Decision to Repurchase Stock (April 8, 2014). Financial Management (Forthcoming). Available at SSRN: https://ssrn.com/abstract=1898839 or http://dx.doi.org/10.2139/ssrn.1898839

Rohit Sonika (Contact Author)

Aalto University - Department of Accounting and Finance ( email )

P.O. Box 1210
Helsinki, 00100
Finland

Nicholas F. Carline

Department of Finance, Birmingham Business School, University of Birmingham ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Mark B. Shackleton

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
44 1524 594131 (Phone)
44 1524 847321 (Fax)

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